Bitcoin News, Analysis, Interviews and Features

Incent Reserve - explainer

Wednesday 07 September 2016

There’s an important element of our blockchain loyalty scheme we want to take the time to explain to our supporters.

From the moment the first merchant goes live with Incent, liquidity and maintenance of an orderly market is imperative if the project is to function commercially. As part of our mandate to support market integrity through market-making and to enable merchants to issue and redeem Incent in good order, BitScan will be maintaining a Reserve of bitcoin and Incent. Ultimately, the reason for this is very simple:

Fiat payments from merchants are subject to a lag, whilst cryptocurrency payments need to be settled instantly at the point-of sale.

The Reserve will allow us to 'arbitrage' funds at the point of purchase, sending customers their Incent immediately

Thus BitScan must have the capacity to remit funds immediately to the customer and merchant to avoid the unacceptable delays that would otherwise be involved.

On issuance: When a customer makes a purchase with a credit card and the merchant’s PoS instructs BitScan to send Incent to their account, this needs to happen immediately for the commercial impact of the reward to be maximised; whereas the fiat settlement funds, sent by the merchant after the fact to pay for the Incent issued, take 2-4 days to process. BitScan therefore needs a reserve of Incent to send to the customer as soon as the instruction is received. BitScan also needs a reserve of BTC which is deployed in response to new Incent issuance, to buy the corresponding amount of Incent at market rates. This has the impact of driving demand and rebalancing circulation of Incent. Finally, when cash funds are received to BitScan’s bank they are converted to replenish the Reserve with BTC - and the cycle repeats.

On redemption: When a customer pays a merchant with Incent, BitScan processes both order and transaction, settling with the merchant in cash and subsequently selling the Incent received at market rates to replenish the Reserve. Of note, any redemption for a product or service attracting a discount for Incent triggers a new issuance cycle which ensures that net demand always trumps net supply.

Maintenance of a reserve is therefore critical, as it enables BitScan to acts as a market-maker and assure liquidity, while promoting enduring appreciation of the asset through maintenance of stable circulation. We recognise that such a model is unusual in the cryptocurrency world, where issuance is typically algorithmic and large pre-mines are viewed with scepticism. However, mining new Incent on a pre-set schedule would take no account of variances in demand for the token following product launch. A pre-set schedule that makes no allowances for market conditions risks placing supply pressure on price, with the resultant price volatility undermining our objective of a stable and liquid digital asset whose value appreciates steadily.

Rather than being a liability for Incent, we therefore consider the presence of a reserve and market-maker essential for Incent to have enduring value to consumers, merchants and anyone holding it as a store of value.

In recognition of and in order to reward the additional trust that this facet of our offering represents, profit deriving from market making operations will be shared 50/50 with the Incent holding community, in the form of a dividend distributed on a pro-rata basis, on the first day of every other (even) month.

Reserve tokens, bitcoin and cash will be held in secure, offline accounts, with only an operating balance of crypto held on-exchange as required to perform this critical market-making function.

Example

50 million Incent are sold at ICO for bitcoin

A reserve of Incent equal to this amount is created, a further 50 million

The Reserve and bitcoins raised at ICO will be used for market-making, with the objective of guaranteeing liquidity while promoting a sustainable rise in token value.

Half of any revenue derived from market-making operations will be distributed to Incent token holders on a pro-rata basis.